Many people wonder why dividend paying stocks make such good investments. After all, it doesn’t seem like much to be paid a few cents a share. When a good plan is followed, though dividend paying stocks can be a good addition to any portfolio – especially if you are looking for an eventual source of income. As you invest in dividend stocks, remember that it takes time and patience to build up a solid dividend income portfolio.
Dividends Provide Some Comfort in a Volatile Market
When the stock market is volatile, it usually doesn’t matter what the company is: You will end up with lost value. Dividend stocks are no different; the share price is just as likely to drop in a down market as all the other stocks heading down. The dividend advantage is seen as you continue receiving a payment for your shares. If a company has solid fundamentals, it is likely to continue paying a dividend. This means you still get some benefit – even in a volatile market.
Dividends Often Keep Up with Inflation
According to SagePoint Financial, dividends normally keep up with inflation. Indeed, if you are concerned about inflation eroding your wealth over time, dividend stocks can help you avoid that fate. Plus, companies that pay dividends are often financially sound (unless they are offering a yield that is quite high; that might be a sign of trouble). This financial soundness is likely to stand companies in good stead in the future, and owning them could mean that eventually the stock’s value will rise as well. This, plus the dividends, means that you will most likely go beyond keeping pace with inflation, and actually beat it.
Things to Remember when Investing in Dividend Paying Stocks
It is important for the beginning investor to remember, though, is that dividend investing doesn’t result in immediate money in your pocket. Unless you have a great deal of capital to buy up a large amount of shares, the immediate impact to your finances will be small. Instead, you need to plan for a time frame of seven to 10 years of regular investing to see an improvement in your income, as well as true value gains for the stock in question.
Also, make sure to do your homework. Research is important when you are buying dividend stocks. The top dividend stock membership can help investors identify stocks with solid yields and dividend growth. Make sure that you are comfortable with the company, and that the yield makes sense for the company. If you plan on using dividends for income later, you want to make sure that you have chosen solid companies with a good chance of success.